Crude Oil Beyond $55 May Hit Indian Equities
Is crude oil a double-edged sword for Indian equities ?? Till recently, when oil prices were retreating to multi-year lows, the stock market fretted over its implications on the global economy. Now, as oil hovers around $50 a barrel — its highest in 2016 so far — investors are keeping their fingers crossed amid worries that a further surge would impact sentiment on Dalal Street.
Fund managers and strategists said a rise in oil prices beyond $55-60 per barrel may pose a risk to India’s current economic growth estimates.
“Increase in crude prices could be a double-edged sword for emerging market equities, which are under pressure due to weak growth and lower fund flows from sovereign wealth funds. We expect pressure on (India’s) fiscal and inflation if crude crosses $55-60-barrel levels,” said Manishi Raychaudhuri, MD of BNP Paribas.
After touching a 12-year low in January, crude moved up by more than 80% and oil hit the $50-barrel mark for the first time in seven months last Thursday.
Oil prices rose as US data showed a fall in oil inventories after supply disruptions due to fire in Canada. Supply disruptions in Nigeria have also supported prices.
Some market experts fear that unless microeconomic factors such as corporate revenue and profits, and demand for goods and services, improve rapidly, rising oil prices may create headwinds for macro factors, including inflation, and fiscal deficit, thereby impacting economic growth.
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